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After six failed bids to acquire Warner Brothers, Paramount is taking it to court. We review the latest in the Hollywood drama that is this week's merger moment. A major new hire at Meta. While Apple and Google team up on Gemini. We break down the newest moves in big tech. And the Justice Department has launched a criminal investigation into Federal Reserve Chair Jerome Powell's leadership of renovations at the Fed's headquarters. This is an unprecedented moment. So we unpack why the market is shrugging it off. For Monday, January 12, it's Blue Markets Daily and I'm Ann Berry. More market details to come. But first, it's a historic moment for the Fed and we've seen stocks yo yoing around today and yields jumping up. But this motion wasn't entirely intuitive. So here's our take on the latest as it stands now, just for some context, text. Yesterday, Federal Reserve Chair Jay Powell released a statement saying that, quote, the Department of Justice served the Federal Reserve with grand jury subpoenas threatening a criminal indictment related to my testimony before the Senate Banking Committee last June. Now, for context, in that June testimony, Powell defended a multi year, two and a half billion dollar renovation of the Fed's headquarters in Washington, D.C. now estimates for the cost of renovating the historical buildings and had increased, leaving Powell to defend them by emphasizing that, quote, the project's purpose was to make the building safe and healthy by removing asbestos and lead contamination and replacing antiquated electrical, plumbing and H vac systems. President Trump has criticized the cost of the refurbishment, but that is not his only issue with Pal, not by a long shot. In his whole year back in the White House, the president has demanded that the Fed cut interest rates and repeatedly expressed a desire to fire Pal. Well, the Fed chair has made a concerted effort not to respond to Trump's criticisms in public, trying to keep the politics out of it, but not this time. Instead, Pal stated this weekend, quote, this new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress's oversight role. The Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of, of criminal charges as a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public rather than following the preferences of the president. In other words, Jay Powell unequivocally saying he is being punished for the Fed acting independently. So what was the market's reaction and why? Well, this one turned out to be a little bit of a Head scratcher. As the day went on, at least one person's view, US equities did start down today. And it's been conventional wisdom for decades that central bank independence is a a good thing, broadly defined as the autonomy to keep monetary policy focused on price and inflation stability, often though while balancing goals, of course, of maintaining economic growth and employment. So the critical word here is autonomy to credibly remain immune from pressure to accommodate government spending that could be inflationary, for example. And just to give some context here, self described independent banks are prevalent amongst America's closest trading allies, including the Eurozone's Euro European Central bank, the United Kingdom's bank of England, as well as the central banks of Japan, Switzerland, Mexico and others. So the equity markets here in the US did open down today because they generally do not like uncertainty. And when that uncertainty then kicks in around the mandate, the independence and the leadership of the Fed, an institution that's critical for the stability of the US economy, that dip down made a ton of sense. All of that being said, the markets rebounded today as it absorbed the news a little bit further and seemed to reach two conclusions. This is one person's view interpreting what the market was thinking when it actually ended up flattish to up for today. Number one conclusion, that with Trump's prolonged eagerness to fire Jay Powell, turmoil has almost been normalized by these markets. Rate cuts also did start last year and as his term as chair expires in only four months time, the market seems to be shrugging it off and saying it can find a way to just manage through a relatively short lame duck period. And takeaway number two for me on what the markets are thinking, they seem to be feeling short termist, the market thinking that a message is being sent here by President Trump to whoever succeeds Powell to do as the President wants or else. Now, Trump has been very clear what he wants. He wants to see lower interest rates, to stimulate the housing market and to cut the cost of government borrowing, both of which the market clearly feeling, at least for now, is a trade it's willing to take. Now let's take a quick look at Treasuries. Short dated yields did drop on the promise of political pressure pushing the Fed towards earlier or deeper rate cuts for 2026. Longer dated yields though, did go up as the market seemed to price in a higher probability of future inflation. So that was the market's reaction. But what about Jay Powell's? Well, let's hear his position in his own voice. I have served at the Federal Reserve under four administrations, Republicans and Democrats alike. In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats. Cannot emphasize enough how different it is for Jay Powell to actually come out and specifically address political concerns, quote, standing firm in the face of threats. There's been a lot of conjecture about the President's ability to fire Jay Powell. He certainly expressed the desire to do it. And Jay Powell has remained silent in the face of those comments. So really breaking his silence for the first time in this instance. Powell did conclude by saying, quote, I will continue to do the job the Senate confirmed me to do with integrity and a commitment to serving the American people. Just as a fact throughout that Fed Chair J. Pal is, by the way, a trained lawyer. He got his J.D. from Georgetown University, spent two years as a law clerk on the U.S. court of Appeals for the Second Circuit, and he worked at a major corporate law firm here in New York before moving over to banking. So I'm sure he's certainly able to reach out to get some good counsel on this one. This story is going to keep unfolding. The market reaction, I suspect is going to keep moving as this story unfolds. We're going to keep watching this one very, very carefully. Coming up, what is the value of the global discovery channels, the cable channels like CNN and tbs? Well, Paramount is filing a lawsuit to find out and major moves in big tech today we we're going to break them down. But first a word from our sponsor, Public John Are there any relics you're using in your daily life? New year. But here we are talking about relics.
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New year. But there's a few things in the old in the past I'm stuck to. I must admit I'm partial to using an old kettle for my morning tea.
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Show we have covered many merger moments covering company tie Ups and acquisitions. But the drama on today's topic is particularly enthralling. So the sale of Warner Brothers Discovery is the subject of this week's merger moment. But it's really morphing more away from a merger Malay or a moment in time into something of a prolonged merger marathon. Well, the latest chapter in the drama came today as Paramount announced plans to launch a proxy fight for board seats at Warner Brothers Discovery, meaning going direct to Warner Brothers shareholders to force a shake up in the composition of the company's board of directors. And as a result, Paramount clearly pushing ahead on its hostile bid on for the company. We're going to get into the details of today's moves. Each move, by the way, this is a complicated chess game. Each of these moves, pretty interesting. You put it all together and it really does get into the realm of the exciting. But John, before we go there, level set for us, what these different sides are fighting over and how they're going about it.
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They're fighting over Warner Brothers Discovery, which put itself up for sale last year. But what is for sale? That's what's important. Part number one is the Warner Brothers TV and film studio, along with HBO and the back catalog of content and ip, that's Harry Potter, er, DC Comics. And then part number two is global Discovery Channels, the cable networks. And that's tnt, HGTV and cnn.
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Got it. So those are the two parts that up for sale. So once again, think of it as the glamorous TV and film studio. It's the library, it's the ip. Part number one. Part number two, Discovery Global. Think of that as the old school cable channels. So those are the two parts that we sort of think about as making up Warner Brothers Discovery. Now let's talk about the bidders. John, lay out for us bidder number one.
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So Paramount has made a bid for the entire company, both sides, the sexy and the less Sexy. And offering $30 a share, or about $108 billion.
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Got it. So the Paramount bid, just to be super clear, if Paramount's bid were to go through, Warner shareholders just take the cash and they go home again. 30 bucks a share, about $108 billion. Warner shareholders would just take the cash, but Warner Brothers has accepted a bid from Netflix, which looks very different in terms of the composition of that bid.
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That's right. Netflix is going just for the first part, just for the studios. And that deal, as you said, was accepted. And it would see the cable network spun off into a standalone, publicly traded company. And that's similar to what we saw Comcast and NBC do just this past month. More of that in a moment. Netflix is offering $27.75 a share in cash and stock, and that would value the company at about $78 billion.
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So just to put that in context, in the Netflix bid, very different from the way in which the Warner shareholders would end up under the Paramount bid. Again, under Paramount, take the cash, they go home deals over. In the Netflix bid, a Warner shareholder gets three different things. They go home with three different currencies. They would get some Netflix shares, they would get some cash, and they would still have some Warner stock which would now be valued or whatever the market thinks these leftover cable chann. So it's a much more complicated, basically set of proceeds that you would get as the Warner Brothers shareholder. And it's the complexity and the fact that some work has to be done to figure out what each piece is worth that has created the opportunity for Paramount to sort of hang on in there and now actually take the issue to court.
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Right. Because there's the question of what the cable networks are worth. That's what you're saying.
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Exactly.
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And so Warner Brothers says they're worth about two to four dollars a share. That's their initial valuation. And Paramount, they're worth nothing. They're saying, you know, we're going to buy this whole thing. But there's really, there's no value to Netflix shareholders for getting a piece of that because they're really not worth anything. And so a lawsuit was filed today because Paramount wants to know from Warner Brothers what they're thinking in terms of valuation.
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Got it. And just to really put this in context, too, in terms of the complexity of the players around this, Warner Brothers has repeatedly defended its acceptance of the Netflix bid by saying that the Paramount off that doesn't have enough transparency with respect to the funding. And one of the reasons that's important is by looking at the relative size of Paramount compared to both the target it's trying to buy and the competing bid of Netflix. Paramount's market cap's about $14 billion. Warner Brothers market cap is $70 billion. 70. So this would be the minnow swallowing the whale. In the case of Paramount buying Warner Brothers, Netflix blows both of them out of the water with a market cap of $381 billion. And so the Warner Brothers Discovery board has the size of Netflix. Look at the transparency. It's a public company. We understand where it's cash that's coming from. Look, we've got a stock that's been trading for a long time. We understand with the Paramount offer, there were question marks around. If you're $14 billion buying a $70 billion company, where's the money coming from? Some of it from debt, some of it from private equity firms and from sovereign wealth involvement. But a big chunk of it was really reliant on Warner Brothers shareholders and the board saying, we are good with the idea that Larry Ellison, co founder of Oracle Son, David Ellison, CEO of Paramount Skydance, that Ellison was going to step up personally and guarantee the equity component of buying Warner Brothers. And at the beginning there were questions around whether he was really going to do that and a trust which was going to pony up some of the money. Now, in order to get some clarity and certainty behind this deal, Larry Ellison and the family did indeed confirm their willingness to personally guarantee to backstop the equity and Paramount's latest offer. But Warner Brothers still said it's not good enough. Warner Brothers still said, even though it's good old fashioned cash, we're going to go with Netflix. And this is why today Paramount filed a lawsuit to force Warner Brothers to release information about how it valued the Netflix transaction. As you just said, John, how it values the network's business and basically prove to the outside world that the board has done its work on behalf of the shareholders to assess truly what the best bid is too. And so here's something that is different about the drama, not just the lawsuit, but when this was all picking up steam and this Netflix offer had been accepted before the holidays, a very important comparison point in the market hadn't yet happened.
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Right.
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Which is Comcast spinning out its cable networks into a now publicly traded company called Versant. It only went public last week and it hasn't gone so well.
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No, that's right. They spun off cable channels like E. And versant opened at $45 a share last Monday and today it's down to nearly $34. It's down 25%. And so if you're using this idea of all right, well, there's value in spinning off all of these cable networks together in a bundle. The market is saying that the value is not as much as people wish.
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And by the way, Versant, the cable channels, the cable networks, it does have these are, you know, CNBC is one of them. It's a premium channel. It's got a very wealthy demographic. It's typically done pret. In terms of its funding, USA is another one. So again, the fact that the Versant spinoff has not gone well has added Fuel to the fire of Paramount's arguments that taking their cash, having a simple deal, getting rid of the cable channels and never having to deal with them again would be a better proposition for Warner Brothers. Well, let's just talk about quickly what it means in terms of the announcement today that Paramount wants to nominate a slate of director candidates. Warner's got a shareholder meeting coming up in about three weeks, which is typically when stockholders have the opportunity to ask questions of the management team. Usually that conversation is dominated by the Wall street analysts and, and institutional investors. Nevertheless, Paramount has gone straight to shareholders. Got a website out there saying, follow us. Paramount has argued that because they keep getting stonewalled effectively by the Warner Brothers Discovery board of directors, then it needs to now nominate fresh candidates to join that board with the hope that it would have basically a new conversation with a board that actually wants to engage with it, potentially shaking up, up what could be a new chapter. Again. The Netflix bid has already been accepted, but Paramount not yet backing down, saying that it would propose an amendment to the company's bylaws that would require Warner Brothers Discovery to get shareholder approval before breaking off its cable unit, as it plans to do and as would facilitate the Netflix deal. Just one last piece on this and then we're. Let me really feel like we sort of turned over every rock here. We should just talk about the regulatory environment. John.
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This is so important because the initial thinking was that Trump would approve a deal with parents Paramount. He's friendly with Ellison's was the thinking. But Trump has called out coverage of his administration by Paramount, CBS News. But then on the other side, just last night, Trump reposted on Truth Social, an opinion piece that argues that Netflix has repeatedly used its platform to elevate progressive narratives. And so Trump hasn't publicly really taken a side or he's actually taken a side against both of these bidders. And here's another thing, Ann. There is, as this drags on, there's this growing buzz in Hollywood that maybe this deal won't go through. Either way, you know, it won't get approved. And maybe that wouldn't be such a bad thing because when this all started, Warner Brothers, the shares were really low, the company was not doing well. But 2025 was a banner year for the company. It produced a TV show called the Pit that was the Emmy winning drama and it was the number one at the box office with Minecraft, Sinners, F1 Weapons. And so it's starting to look like maybe this enormous studio, this historical studio can stand on its own and might not be the worst thing if this didn't go through regulatory that's really interesting.
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Well, let's take a look at what the market is saying in terms of voting with the money and placing its own bets on what they think is going to happen. Shares in Warner brothers down about 1 1/2% today. It's trading at about a dollar under the $30 per share offer that has come in from Paramount. Nevertheless, that is a massive premium to where Warner Brothers was trading last year. To your point on just how poorly the stock before it came into play as an acquisition target, let's take a look at what's going on with the bidders though it looks as though the market or the stockholders aren't particularly excited by either of these potential buyers winning the prize here. Netflix stock down about 6% over the past month so its shareholders clearly not convinced this acquisition is a great move and as of now it is looking like it's going to be the acquire subject to regulatory approval. Paramount Skydance down 11% over the past month. Again Netflix looks like it is likely to win this bid. Shares are down. Paramount look like looking like it's likely to lose this bid and it shares a down. So in that case the shareholders are really saying we'd prefer frankly that Paramount did have more of a shot at buying this. Perhaps Paramount Skydance does need this set of assets as of right down right now though neither bidder looking like a winner in terms of their current share price performance relative to the start of 2026. We're going to keep watching this one. I personally love the drama of some of these merger, not only by the way in the run up to the deal, but once these deals close there's often a lot of activity that goes on for the integrations and there's drama after the deal closing, sometimes as much as there is beforehand. And when it comes to Hollywood, whether it's Netflix, whether it's Paramount, I've got to believe there is going to be headlines, some fireworks coming on out of any deal that does go through. Well, it is 4pm on the east coast. What a long trading day as we've looked to see the impact of the Fed news. The markets though now closed. We don't have a ticker tape so let's throw it over to our human ticker.
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Our producer John The S&P 500 and the Dow both finished up about 210 of a percent and the NASDAQ finished up a quarter of a percent. Some market headlines shares in allegiant airlines ticker algt were down over 8% today after the company announced it would buy rival budget airlines sun country for $1.5 billion in cash and stock. Both airlines focus on cost conscious travelers connecting smaller cities to sun beach and other vacation destinations.
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Very interesting tie up one which really got drowned in all the other news going on today. But two things that caught our eye here. Number one, this merger is one that will test the administration's appetite for a union of two airlines. Historically, regulation has made this a difficult path, but we'll see what goes on in the case of Allegiant and Sun Country. Number two, the fact that we're seeing the two budget airlines get together at a moment in time when the big flagship carriers like the American Airlines and the Deltas are much more focused on getting that premium traveler. So seeing a bit of a bifurcation in the market here, the allegiance CEO Greg Anderson expressed confidence that the deal is going to go through, noting that the two carriers have little network overlap. And certainly shareholder in sun country were delighted. Stock was up nearly 10% today. We're going to shift news gears a little bit to talk about big tech because it was also a big day for some of the biggest names in the mag 7. Apple is teaming up with Google to use Gemini models to power its artificial intelligence features, including a major Siri upgrade later this year. This one caught my eye. John, do you use Siri much on your Apple devices?
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I used to when the phone had a button and I don't know how to use it anymore. Like they took away the intuitive part for me.
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That's unusual for Apple, actually. Well, let's talk a little bit about this one. When these big tech companies work together, I know it always catches our eye over here.
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Yeah, sometimes behind the scenes you don't know what's happening. But as a reminder, Google pays Apple billions of dollars annually to be the default search engine on iPhone. So they already have a bit of a partnership there. Shares in both rose nearly half a percent today, and Google briefly traded above the $4 trillion market value.
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I got to tell you, this one caught my eye because I feel as though Gemini has been picking up a bit of a halo. We saw a lot of discussion at the end of last year. Big names, people like Mark Benny, our founder and CEO salesforce, talking about how Gemini felt like a real step up relative to the latest iteration of chat, GPT and open AI's models. And with Apple basically voting right with its enormous reach to say it's going to be Gemini that we're use to incorporate in Siri, which is an important product for Apple. It really is a display of confidence in Gemini that does continue to feed this concern around OpenAI's position at the center of so many big capex deals. At the same time as the incredibly well capitalized and huge repository of data that is the Alphabet family is clearly pushing all of its might behind its Gemini suite of models. So absolutely going to keep watching this one. I don't think this is going to be the last we hear of this and we're just in January. There's more to come on this I suspect. Let's take a quick look at Matter because this is the company formerly known as Facebook, which shifted gears to double down on the Metaverse, changing its name to do so. And now another sign it's not only putting more and more money behind AI, it is doubling down on some big hires and some big people changes to make sure it executes against a major AI infrastructure plan.
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Right. Meta announced today that it appointed Dinah Powell McCormick as its president and Vice chairman and she's going to guide overall strategy with a particular focus, as you said, on AI in infrastructure efforts.
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That's right. That's Dina Powell McCormack. Dina Powell Prior to joining Matter, Powell McCormick served as Deputy National Security Advisor to President Donald Trump. She served Under Secretary of State Condoleezza Rice in President George W. Bush's administration. Her career. She then went on to Goldman Sachs and had very prominent roles over there at the major bank. And then she actually last year joined the board of Meta. That was in April of last year. She stepped down in December and no one at the time knew she had a big role at bdt, which is an advisory and investment firm that had been set off, set up by some Goldman Sachs alums. So she's very plugged into Wall street, not just politically. So this is a fascinating, fascinating move now to go from, you know, big government roles to big banks. Now over to big tech and talk.
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About being plugged in. Her husband, by the way, is Republican senator from Philadelphia, Dave McCormick. He was previously the chief executive officer of Ray Dalio's Bridgewater Association Associates. And that's one of the biggest hedge funds in the world.
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Well, hours after Meta announced Power McCormick's new role, Mark Zuckerberg unveiled a new AI infrastructure initiative called Meta Compute. And the leaders of Meta Compute, he's allocated some big talent over to this internally, are explicitly tasked with working closely with Dina Palmer McCormick to partner with governments and sovereigns to build, deploy invest in and finance matters, infrastructure. That's the quote there on what the scope is going to be. And again, Dina Powell McCormick has a fantastic, fantastic relationships in the sovereign wealth world. She was focused on that actually in her time at bdt. What a packed day today. And it's only Monday. But we're excited to lean in that this week we are starting to see earnings trickling in. We have got Delta tomorrow, we've got the big banks. Something like seven of the 15 biggest banks are reporting earnings by Friday. We're going to stay on top of all of it for you. That's it for today's Blue Markets Daily.
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Brew Markets Daily is hosted by Amber and produced by John Cartel, Tarkab Delatif and Emily Milian. Our technical directors, Uchena Ogl, Jim Orso is our audio engineer and the president of Morning Brew Inc. Is Devin Emery. We'd love to hear from you. If you have any feedback or a company you'd like us to COVID leave a comment or send an email to brewmarketshoworningbrew.com and wake up tomorrow with the.
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Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.